Taylor Wimpey, the country's biggest housebuilder by volume, will today announce that it is in talks with its major shareholders about raising much-needed cash to rebuild its shattered balance sheet.

The business, which has been hit hard by a slump in new orders due to the credit crunch, hopes to have £500m of new money in place by Wednesday when it is expected to use a scheduled trading statement to issue a profit warning and announce a cut in dividend alongside a gloomy assessment of the market. Taylor Wimpey insisted last night it had "nothing to say". But industry sources said Legal & General, Standard Life and Barclays are among the core investors in discussions with the housebuilder whose share price has crashed from a 2007 high of more than 350p to less than 50p this year.

A wide group of key shareholders controlling more than a quarter of the company are believed to be broadly supportive of the fundraising move which is designed to avoid raising money through a dramatic landbank sell-off at the worst possible time in terms of values.

The Taylor Wimpey board is also in talks with its main lending banks in an effort to encourage them to be flexible at a time when lending covenants might otherwise be broken.

Peter Redfern, the group's chief executive, has already wielded the axe inside the company in an effort to cut costs, closing 13 of its 39 UK offices with the loss of 600 jobs.

Taylor Wimpey completed 14,862 British homes in 2007 but has found consumers unwilling to buy without significant price discounts. The North American business is also being hit hard by the credit crunch and TaylorWimpey has already written off £283m on that side of the Atlantic.

The problems are widespread in the house building sector with repeated warnings by rivals such as Redrow about the dire conditions in the market.

Property analysts at investment bank UBS have talked about an "armageddon scenario" where house prices have fallen 20% by the end of next year.

Barratt Developments, the UK's second largest volume housebuilder, was recently forced to reassure the City about its financial position after a slump in its share price put question marks over its survival in what some fear could eventually turn into a rerun of the 1990s house price crash.

Barratt is also in talks with its banks as it struggles with a £1.7bn debt mountain. Taylor Wimpey has even larger borrowings, of £1.9bn. Both companies recently made substantial acquisitions, Barratt buying Wilson Bowden for £2.2bn and Taylor Woodrow in a £5bn merger with Wimpey.

Last Friday shares in Taylor Wimpey topped the FTSE 250 index, rising 12% to 62p after broker Panmure set a 105p price target, on hopes that a rescue package could be tied up with investors.